Mark Costin, commercial director at Insurwave
11 October 2023ArticleAnalysis

Captive data: know your risk

In an environment where there is a shrinking of available capacity in the risk transfer market, tightening carrier restrictions and ever-increasing premiums, it is more attractive than ever for companies to seek a captive insurance arrangement to regain control over costs, market stability, and loss management.

However, running a captive involves numerous, data-heavy activities such as premium billing, policy administration, and regulatory compliance. With the many internal and external datasets a captive insurance company may be responsible for, employing a robust data management process will be a key ingredient for future success.

Good data management

As a means of risk retention, it is important that captives have access to good quality data as it informs the management of the type and quantity of risk that will be retained or transferred to the insurance market. Similarly, captives manage a large amount of data that must be collected, stored and analysed. Government regulatory bodies often require detailed and accurate data reporting, so if a strong data management strategy is not in place, a failure to be compliant can potentially lead to tough penalties.

For example, passing a regulatory audit would require hundreds of hours of manual administrative labour, taking away valuable time from tasks that matter in favour of processes such as data collection and internal reporting that could be automated under a data management system.

The cost of risk

Without good data, balance sheet exposures can become unclear, as was seen in previous announcements from Lloyd’s of London asking its syndicates to understand and manage their exposures.

If you are a management group and are unclear about what your exposures look like, your first instinct will be to buy everything at a commercially viable price—if you can’t see what the alternatives are.

However, with access to good quality data you will have the confidence, provided by the insights you now have into your balance sheet, not only to retain more risk and create a captive but also to ensure you can better manage your risk overall.

How does this change when we consider the growing popularity of group captives?

Group captives

While captives traditionally began as a pursuit for larger, heavily capitalised companies capable of weathering significant losses, other companies are coming together to form group captives. A principal benefit of group captives is that they effectively create virtual capacity that mitigates hard market cycles.

As has been said before, data is the lifeblood of insurance, and nowhere is it more important than when it comes to profitability and the ability of captive owners to understand their risk exposure.

When you are bringing together the exposure of several companies and trying to understand what those exposures are, the more accurately you can consolidate that data while maintaining the integrity of the member companies, and the better the decision-making process will be. However, it’s important to note that you don’t want to co-mingle data if it’s proprietary.

Captives can then charge the right premiums and give you a much better idea of how your risk transfer might work.

One of the unique challenges that come with a group captive situation is the increased amount of data that needs to be validated to derive value and give the group collective leverage. Therefore, with proper data recording, collection and analysis, captive owners can use technology to match the needs of their insureds.

With the help of data management platforms such as Insurwave, group captives can receive vital data well before their renewals, giving them time to implement solutions for problem areas.

The more accurately and effectively you manage your data and understand the exposures of a number of companies, the more effectively you can consolidate those exposures with that data, which will equal a better outcome for the captive owners.

Mark Costin is commercial director at Insurwave. He can contacted at: